Endeavour Sees Gold Producers Curbing Exploration on Price Slump

Gold producers are likely to scale back exploration programs as lower prices spur cost cuts, the head of Endeavour Mining Corp. (EDV) said.

“The industry has just gone through quite a shock in terms of reduction in the gold price,” Chief Executive Officer Neil Woodyer said in Abidjan, Ivory Coast. “Mining expenditure on projects will be down. The industry will be focused on cost containment, essential expenditures and less exploration.”

Bullion has lost 12 percent this year, tumbling into a bear market last month, as the MSCI All-Country World Index of equities climbed 11 percent. Efforts to boost economic stability have eroded demand for haven assets such as gold as money starts to flow into riskier investments.

The drop in prices has already affected “economic projects and ongoing operations” in the industry, Woodyer said in an interview yesterday. “It’s a process all mining companies are going through, and some are holding their development projects until they see results of changes in the economic environment.”

Endeavour operates in Ghana, Burkina Faso and Mali and is building its fourth West African mine in Ivory Coast, due to start in the first quarter of next year, according to Woodyer. Output may rise 17 percent to 350,000 ounces this year following the expansion of Mali’s Tabakoto mine, and reach 450,000 ounces in 2014 once Ivory Coast’s Agbaou project starts, he said.

Budget Review

Endeavour, which had planned to spend $200 million this year, will review its budget and “see what is absolutely essential,” Woodyer said. The Georgetown, Cayman Islands-based producer will also seek to reduce operating costs as it becomes “less focused on growth and more focused on cash generation.”

Even with falling prices, the company will keep its $120 million budget for Agbaou as “it is a new efficient mine and it is a first step to other things we can do in Ivory Coast,” Woodyer said, citing the country’s “tremendous potential” and Endeavour’s ability to “get through the present gold climate.”

The Agbaou site, about 200 kilometers (124 miles) northwest of Abidjan, has estimated reserves of 905,000 ounces and forecast gold production averaging 103,000 ounces a year over eight years, according to a statement e-mailed by Endeavour.

Ivory Coast, French-speaking West Africa’s biggest economy, has announced plans to review its mining code, which dates from 1995. The nation, which produces gold, diamonds and manganese, is following the lead of Ghana, Guinea, Zambia and Zimbabwe in seeking more government revenue from mineral extraction.

Mining Code

The code “just needs to be updated in some of its details, rather than in its concept,” according to Woodyer, who said it must be “reasonably attractive from an investment point of view” and competitive with other African countries. The CEO, who met with Ivory Coast President Alassane Ouattara on May 7, said he expects Endeavour’s own “mining convention,” an accord specific to each operator, to be signed in the coming weeks.

Ivory Coast expects to produce 20.1 metric tons (709,000 ounces) of gold this year, up from 14.9 tons in 2012, according to the Finance Ministry. The nation has three mines in operation, including Randgold Resources Ltd. (RRS)’s Tongon mine and Newcrest Mining Ltd. (NCM)’s Bonikro project.

In neighboring Burkina Faso, Endeavour expects to complete a feasibility study for a project in Hounde by the end of the year, Woodyer said. That may expand the company’s total output to 550,000 ounces in 2016, according to a statement.

“The fundamentals look good,” Woodyer said. Endeavour is “well placed to grow when the market changes.”

To contact the reporter on this story: Olivier Monnier in Abidjan at omonnier@bloomberg.net

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net

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